A bed & breakfast on every block: As Airbnb home rentals multiply, Madison regulators get antsy

Paul and Iho Sager's two-bedroom flat is situated just a few blocks from B.B. Clarke Beach and walking distance to Willy Street's eclectic stores and restaurants. They have hardwood floors and original woodwork, and their "Moroccan Room" is a dreamy screened-in porch with a colorful hammock and low-slung furniture covered in embroidered fabrics from their world travels. And even though the Sagers have a 10-month-old baby, Alexandrea, everything is in its place.

That's probably because they often have a paying guest or two in their spare bedroom -- especially in the summer.

I found the Sagers' rental because it popped up first on a search for Madison lodgings on Airbnb.com, a wildly popular -- and sometimes controversial -- website that matches "hosts" and "guests" for lodgings around the world. I couldn't resist the title of the Sagers' listing: "Madison Shangri-La."

On Airbnb you can rent everything from a couch in someone's living room to entire houses and condos -- even igloos, hobbit-like Earth houses and geodesic domes. The company's CEO, Brian Chesky, does not have a home; he lives in Airbnb rental spaces. Airbnb is often featured in articles about the so-called sharing economy, where everything seems to be for rent: homes, bikes, cars and people's time.

Full disclosure: My family used Airbnb to rent a tree house in the redwoods outside Santa Cruz, Calif.; a sheep and pony farm in Kentucky; and a tiny bedroom from a professional circus clown in Strasbourg, France. Aside from one dud (a loud, smoky loft in Chicago), the rest of our accommodations have been terrific and affordable. For a family of four on freelancers' incomes, Airbnb has meant the difference between traveling and a staycation.

I didn't know how involved Madison was in the Airbnb boom until I plugged our city into the site's search tool and found more than 80 rentals. Because the company sends professional photographers to all the spaces for rent, the site looks a lot like those glossy magazines sometimes called "house porn."

According to a March 9 story in The Economist, more than four million people have used Airbnb since the San Francisco-based site launched in 2008. The company is now valued at about $2.5 billion, according to an article on Bloomberg.com. (The company charges a 3% fee from both hosts and guests.)

Airbnb operates in 192 countries, and promotional copy on the website says hosting is "the easiest way for people to monetize their extra space and showcase it to an audience of millions."

The only problem is that Airbnb is not legal in Madison. And officials from the local hospitality industry consider it unfair.

Wealth transfer

Paul and Iho Sager won't argue about the fact that they appreciate "monetizing" their extra space, but they also see a broader mission. Iho hails from Mongolia, and she met Paul (originally from Ohio) at a Cambodian-Vietnamese New Year's celebration at the UW's Red Gym. "Airbnb, if you're open to it, is connecting people," says Paul. "I hope this is the beginning of a huge movement."

The Sagers started renting their spare room (situated between the shared bathroom and the front hallway) almost two years ago, and it is now occupied 10 to 12 nights a month. Their renters come from all over the world. In turn, Airbnb income funds the Sagers' travels.

"We've used it in Turkey, we've used it in Morocco, and we met wonderful people and got to stay with them," says Paul.

Likewise, they enjoy hosting. "It's a great way of meeting people who have common interests," says Iho.

The Sagers sometimes invite guests to dine with them, and they always provide smoothies made from farmers' market ingredients.

The Sagers feel Airbnb's safeguards protect them from potentially difficult renters. Airbnb protocols prevent people from sharing email addresses or phone numbers until a space is booked and paid for, and the company has a pay-in-advance policy. It also requires guests and hosts to fill out profiles and verifies identities through credit cards. It provides insurance for losses up to $1 million, and the Sagers find that comforting.

"We've had zero problems," says Paul.

Because they can read profiles of potential guests, they've turned down a couple of requests for stays. "We're not particularly interested in some guy coming during football season with a bunch of buddies," says Iho.

Paul Sager says he appreciates the way Airbnb helps funnel money into neighborhoods rather than hotel chains. "There's a wealth transfer happening from the hotels to...us. And I think it's a good thing. I don't know if the hotels like that, but they're not going to go out of business."

Uneven playing field

Despite the glow that surrounds Airbnb believers, the company is not without its detractors. Larry Downes, a Harvard Business Review blogger, says Airbnb and other Internet-based rental sites have gone from "gimmick to disrupter in record time," offering rates 20%-50% below market.

"We know it exists and it's popular," says Frankel. "A lot can be right about it, but there's also a lot that can be wrong. We have a lot of faith in our hotel partners. Not everyone is qualified to be a host or an ambassador." Frankel maintains that renting on Airbnb is "a bit of a risk" for both hosts and guests.

The idea that Airbnb creates an uneven playing field for the hospitality industry has motivated some Madison alders to meet with city officials to discuss the proliferation of Airbnb units, with an eye toward regulating or even banning the rentals. In the July/August issue of the Eastside News, Ald. Marsha Rummel responded to an article about Airbnb in that same publication's previous issue. "There is one key fact the article left out," wrote Rummel. "Airbnbs are not legal in Madison."

"It seems to me to be a fairness question," says Rummel. "The big questions from the regulatory framework are the zoning and the room tax. And if you really are a registered, licensed accommodation, you get inspected and you have authority to do that. These people are just sort of under the radar."

Rummel is concerned about the original Eastside News article. "It read like, 'Yay, this is so cool, monetize your extra space.' But without any kind of political understanding of what goes on. And all across the country it's not legal, as far as I know from my research."

In San Francisco, the site's hometown, Airbnbs are everywhere, and regulation of the rentals has been lax. Tenant rights organizations have complained about the impact on affordable housing supply when landlords take properties off the market for short-term rentals. And in 2012, city officials decided to charge the hefty (14%-15.5%) hotel tax to Airbnb landlords.

In New York last May, in an attempt to crack down on illegal hotel operators, an Airbnb host was fined $2,400 for hosting. These actions don't seem to be slowing down Airbnb's meteoric rise, however.

Under the radar

Airbnb flew under the radar of most Madison officials until former Ald. Bridget Maniaci examined Madison's Airbnb scene. She cross-referenced the site, creating a spreadsheet that identified rentals by district. In May, Alds. Rummel, Mark Clear, Shiva Bidar-Sielaff and Matt Phair met with mayoral assistant Sally Miley to discuss the regulatory environment.

"I've had conversations with people who have it in their neighborhood and are not particularly happy," says Miley, who says the city is studying the issue before taking action. "We're working through the list of issues and have to figure out some recommendations."

Miley says the group discussed whether Airbnb rentals are permitted under Madison's zoning ordinances and whether neighborhood zoning should affect the rentals. They also covered issues of density, rentals of single-family homes vs. multiple-family buildings, and whether there should be a minimum number of nights to trigger registration with the city. And they also discussed safety (including health department inspection), and whether the city should limit the number of days per year that people could rent out their spaces.

Rummel has received only two comments since her article was published: one from Paul Sager, the owner of "Madison Shangri-La," and the other from someone complaining that there were three Airbnb rentals on her block.

"Not every [Airbnb proprietor] owns the place or lives in the place," says Rummel. "A lot of it is tenants who are subletting. They're not the owners. There's at least one example of somebody who was making more money off the weekend [rental] than they were paying in rent."

The city and the alders are still "trying to figure out what we think," says Rummel. One possible action would be for the city to define Airbnb rentals as "tourist rooming houses" under Wisconsin Administrative Code DHS 195.03 (20).

"We could amend the zoning code to allow tourist rooming houses and figure out a way, but that assumes you want it," says Rummel. "And maybe we'll get there. Maybe it's inevitable. I guess we have to decide as a community if it's okay to have a bunch of random strangers -- maybe every night -- come into your next-door neighbor's house."

Dana Schreiber, a longtime resident on Madison's east side, says three of her neighbors rent their houses or apartments through Airbnb. "I have lived on this block over 30 years and seen it go from seedy to great," Schreiber wrote in an email to Isthmus. "Much of that is due to efforts of neighbors that worked hard to change zoning to keep it from becoming all rentals. Now I feel those efforts are being exploited by welcoming transients into the area. I would prefer that we promote neighborhood and encourage families and people invested in our community to live here."

Keeping it local

Even though she's undecided on eventual action, Rummel says she's aware of the positive effects Airbnb can bring to communities.

"I've read articles that say the sharing economy is different from the old kind of economy. It's like the recycling economy: You have extra this, just reuse it. And I think that's a really attractive feature," she explains. "You can make some extra money off your place, and you're part of creating this whole subculture that is people traveling and seeing the world in a more sustainable way. I understand why it's attractive to people."

When visitors stay in someone's home, says Rummel, there's an "authenticity to it that you don't get when you go to a franchise hotel or even an independent." If you just pick up a guidebook in a hotel lobby, she adds, "you don't really know the homemade restaurants or where you're going to find a vegetarian meal or where you're going to get a good cup of coffee."

Last year, Airbnb commissioned the firm HR & A Advisors to conduct a detailed look at the company's economic impact in its hometown of San Francisco. In one year, Airbnb generated $56 million in direct and indirect spending for the city, including $12.7 million to hosts, and $43 million to food, beverage, entertainment, and transportation businesses. The study also found that a majority of Airbnb hosts earned below the median income, and that many use Airbnb income to pay mortgages or to cover regular living expenses.

Also important to note: The study found that Airbnb users tended to stay longer in San Francisco than hotel guests and to veer off the main tourist circuits, distributing money throughout local neighborhoods and businesses instead of to hotel chains.

Good neighbors

Just over the border in Middleton, Airbnb hosts extraordinaires Leah Narans and Gary La Fleur will be happy to tell you where to get a good cup of coffee or a good vegetarian meal. They also stock their guests' mini-fridge with Capital Brewery beer. "You can't get more local than down the road," says Narans.

Narans and La Fleur rent an entire basement apartment for $50 a night (plus a $20 cleaning fee per stay) for up to six people. Their rental includes lots of family-friendly perks, like board games and a whole dresser full of dress-up clothes.

When I arrived, a pack of mismatched rescue Chihuahuas greeted me. I sat down with Narans, and La Fleur returned from the kitchen with one of the most divine desserts I've ever eaten: a Key lime white chocolate cheesecake with an almond flour crust, topped with vanilla sugar, caramelized rhubarb, strawberries and black currant sauce. "All gluten-free," said La Fleur, the pastry chef at Blackhawk Country Club.

"Our guests get treats," says Narans. For example, they knew from the description on Airbnb that one guest loved cheese. "So we went to Carr Valley and got them a Menage (three-milk combo) cheese, because that's one of our favorites."

A medical technologist and volunteer firefighter, Narans discovered Airbnb while she was on a road trip with her daughter, Elizabeth, 8. During an East Coast Airbnb stay, Narans had an epiphany: Her family had some extra space they could rent.

They began renting last September, and have guests almost every weekend through the summer. "One of the biggest reasons we have a lot of positive feedback is from families that can't afford five in a hotel room. They don't want to spend $200 a night," says La Fleur.

Narans and La Fleur have used rental income to maintain their home, and Narans says she wouldn't be able to travel without the extra income: "With the economy the way it is, people don't have money to travel as much. She's saving for a trip to Africa with Elizabeth to build a medical clinic.

'A lot of work'

Approximately once a month, Samantha and Bruce Crownover and their daughter Lilly clear out of their sunny home near University Hospital to make room for Airbnb guests. Their "Cozy Artist's House" is listed for $236 a night for up to six people, and it features leather furniture and oversized prints of Bruce's. (He works as a printmaker at Tandem Press, and she is the executive director of Bach Dancing & Dynamite Society.)

When they learned about Airbnb, the Crownovers felt motivated to earn extra cash to buy a new (used) car, build emergency savings, and put away some money for travel.

"It's a huge adventure, says Samantha. "We don't have a second home, so we have to go to Grandpa's or a neighbor's or a friend's, or we'll take a trip out of town" when the house is rented.

Samantha says it takes about four hours to prep for guests' arrival and another four when they check out -- including dusting, vacuuming and clearing out the refrigerator.

When they first started renting, Samantha felt apprehensive: "It's a huge leap of faith. The first thing you think about is: Are these people going to be ax murderers? Are they going to make copies of our keys and come and rob us?" But she reports no major problems so far, other than some rambunctious toddler guests.

Samantha says renting out the house has helped her gain a deeper appreciation of the meaning of home.

"Coming home to this place feels so much sweeter," she says. "It's our own safe, private place for us. That feeling, coupled with visiting the Tenement Museum in New York, makes us feel how privileged we are to have this beautiful house. So many people have nothing, and look what we have."

Bring on the inspectors

As to whether Airbnb rentals should be regulated in Madison, Paul Sager says Marsha Rummel "had a point" when she pointed out the uneven playing field for licensed accommodations. As soon as he saw Rummel's article in the Eastside News, Sager called her to share his positive feelings about Airbnb. "Then I called the health inspector and wanted to set up an appointment and have us kind of legit," says Sager.

"I want to make it fair," he says. "There's a room tax we're supposed to be paying: no problem. Health inspection: no problem there.

"I think this is just the new way of doing things," Sager continues. "Some people are uncomfortable with that, but it's part of the new sharing economy -- and it's happening," says Sager. "If we embrace it and work together, I think there's a way we can work through this."